High Price of Raw Milk to Drive Up Dairy Prices

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Tnuva milk cartonsCredit: Dan Keinan

The Agriculture Ministry on Monday approved a steep increase in the price of raw milk paid to farmers, which is likely to make dairy products in stores more expensive.

The new "target price" paid by dairies to farmers and set by the government will rise by 14.59 agorot (four cents), or. 6.8%, a liter in July.

The ministry said it set a lower price than its calculations call for. The formula for calculating the target price put the increase at 18.1 agorot a liter. But the ministry’s forecasts say milk production costs will fall in the next quarter. The target price is adjusted periodically based on changes in the cost to farmers of producing milk.

As for consumers, the large dairies may well raise their prices for dairy products, although dairy products under price supervision will not become more expensive immediately since this requires approval of a joint committee of the Agriculture and Finance Ministries. It is not clear whether Finance Minister Yair Lapid will approve regulated price hikes. Unregulated dairy product prices are at the mercy of the dairies.

“When there is such an increase, the dairies will have no choice but to raise prices of their products,” said a senior executive at one of the companies, who asked not to be identified. “Over half the dairies’ costs are raw milk, and now the government is raising the price of the raw material and causing the dairies to raise prices.”

The Agriculture Ministry said most of the increase in the target price for raw milk is due to the sharp rise in the price of grain used to feed the cows, which is the result of this winter’s drought. The ministry said it had reached an understanding with the growers of feed for cows to restrain the price hikes to prevent an even greater rise in dairy prices.

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